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AMBAC Assurance Corp. v. U.S. Bank National Association

United States District Court, S.D. New York

January 18, 2018

AMBAC ASSURANCE CORPORATION, and SEGREGATED ACCOUNT OF AMBAC ASSURANCE CORPORATION, Plaintiffs,
v.
US BANK NATIONAL ASSOCIATION, Defendant.

          OPINION

          SIDNEY H. STEIN, U.S. DISTRICT JUDGE.

         In June 2017, the Court denied plaintiffs' motion for a preliminary injunction as well as defendant's motion to dismiss the Second Amended Complaint. Shortly thereafter, defendant U.S. Bank National Association moved for reconsideration of the Court's decision denying the bank's motion to dismiss that complaint. The bank sought reconsideration on the grounds that (1) subsequent to the denial of its motion, it determined that it should reject the proposed settlement of the New York state court action under consideration at the time of the Court's June order - on which Ambac's complaint focused in large part - and (2) the Court sustained plaintiffs' claims based on a legal theory supposedly not set forth in the pleadings. U.S. Bank thus asked the Court to reconsider and, upon reconsideration, grant the bank's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6).

         After hearing argument in December 2017, the Court orally announced its decision to grant the motion for reconsideration and dismiss the complaint with prejudice. (See Order, Doc. 51.) This opinion memorializes the reasons for that decision.

         I. Background

         This action concerns defendant U.S. Bank's responsibilities as the trustee of Harborview Mortgage Loan Trust 2005-10, a residential mortgage-backed securities trust backed by loans originated by Countrywide Home Loans, Inc. Plaintiff asserts that the trust has suffered “staggering losses” of approximately $367 million, allegedly as a result of defective loans issued by Countrywide in breach of its obligations under the trust's governing documents to take steps to verify that the borrowers were capable of repaying the loans. (SAC, Doc. 14 ¶¶ 3, 11.) As trustee, U.S. Bank sued Countrywide and its successor entities (Bank of America Corp. and Bank of America N.A.) in New York state court in 2011 for those deficiencies. On behalf of the certificateholders, U.S. Bank's state lawsuit seeks to compel Countrywide to cure or repurchase the defective loans. (See N.Y. Summons & Compl., Doc. 17-1 ¶¶ 134-139.) After more than six years of litigation, the parties in the New York state case reportedly completed fact discovery and had begun to exchange expert reports. (SAC ¶ 53.) In December 2016, U.S. Bank notified the certificateholders that it was considering a proposed settlement of the New York state action for $56.9 million - an estimated 15% of the trust's total losses. (Id. ¶¶ 64-65.)

         Plaintiffs Ambac Assurance Corp. and its Segregated Account (collectively, “Ambac”) issued a financial guarantee insurance policy for the benefit of certain Harborview 2005-10 certificateholders. To the extent that Countrywide does not make the certificateholders whole by repurchasing the defective loans, this insurance policy will obligate Ambac to make up any shortfalls in loan payments to the covered certificateholders - apparently, amounting to nearly $80 million. (Id. ¶ 4.) Ambac filed the present action in this Court on January 20, 2017, shortly after U.S. Bank notified the certificateholders that the bank was considering settling the New York state action for a fraction of the value of the alleged losses.

         Less than one month after this action was commenced, U.S. Bank notified the certificateholders that it was considering an enhanced settlement offer that would further reimburse the trust for $10 million in fees and costs incurred in the New York state action. (Id. ¶¶ 9-10, 70.) U.S. Bank also announced its intention to commence what is known as a “trust instruction proceeding” in Minnesota state court in order to seek guidance from that court as to whether it should accept the amended proposed settlement. The bank followed through on that promise by filing such a proceeding in Minnesota's Hennepin County District Court, Fourth Judicial District, on March 6. (See Minn. Pet., Doc. 41-4.) The New York state action has now been stayed by the New York Supreme Court Justice pending the resolution of the Minnesota trust instruction proceeding. (N.Y. Stay Order, Doc. 45-6.)

         Ambac's Second Amended Complaint - the pleading at issue on this motion - asserts seven causes of action under New York state law:

. Count I: declaratory judgment that an event of default has occurred under the trust's governing documents, triggering a fiduciary duty for U.S. Bank to act as a “prudent person” on the trust's behalf
. Count II: declaratory judgment that accepting the amended proposed settlement would breach U.S. Bank's contractual, statutory, and common law duties
. Count III: declaratory judgment determining the proper procedure for U.S. Bank's prior and proposed allocation of recoveries from Countrywide
. Count IV: breach of contract by U.S. Bank's acceptance of the amended proposed settlement
. Count V: breach of contract by U.S. Bank's prior and proposed allocation of recoveries from Countrywide
. Count VI: breach of fiduciary duty by U.S. Bank's acceptance of the amended proposed ...

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